The basic rule: your housing payment should not exceed 28% of your gross monthly income
Start here: take your total monthly income before taxes (your gross income), multiply it by 0.28, and that number is the upper limit most lenders will allow for your housing payment. If you earn $4,000 a month gross, 28% is $1,120. That is the ceiling — not a target, but a hard boundary that lenders use to decide whether to lend to you.
This 28% rule covers your mortgage payment, property taxes, homeowners insurance, and mortgage insurance if you are putting down less than 20%. It does not include utilities, maintenance, or repairs. Those are separate costs you need to budget for, but they do not count toward the lender's calculation.
The reason lenders use this rule is straightforward: they want to know you can still pay your other bills if your housing costs stay the same. If housing takes up more than 28% of your income, you have less room for food, transportation, medical care, and debt payments. That makes you riskier to lend to.
Key Takeaways
- Your housing payment should not exceed 28% of your gross monthly income — the amount you earn before taxes are taken out.
- The 28% includes your mortgage, property taxes, homeowners insurance, and mortgage insurance, but not utilities or maintenance.
- Lenders also look at your total debt-to-income ratio, which should stay below 43% — this includes your housing payment plus all other monthly debts.
- The actual house price you can afford depends on your down payment, interest rate, and loan term, so getting pre-approved shows you your real number.
- A house that fits the math may still stretch your budget if you have irregular income, job changes ahead, or little savings left after the down payment.
How your down payment and interest rate change the price you can afford
The 28% rule tells you the payment you can carry, but it does not tell you the house price. That depends on three things: how much you put down, what interest rate you get, and how long the loan is.
A larger down payment means a smaller loan, which means a smaller monthly payment on the same house. If you put down 20%, your payment is lower than if you put down 5% — even though you are buying the same house. If you put down less than 20%, you will also pay mortgage insurance (PMI), which adds to your monthly cost.
Interest rates move constantly. A 6% rate and a 7% rate on the same loan amount create different monthly payments. A higher rate means a higher payment. You cannot control the rate the market offers, but you can see what rate you might get by talking to a lender before you start house hunting.
Loan term matters too. A 30-year mortgage has a lower monthly payment than a 15-year mortgage on the same amount borrowed, because you are spreading the payments over more months. But you pay more interest overall.
The second rule: your total debt cannot exceed 43% of your gross income
Lenders use a second number alongside the 28% rule. Your housing payment plus all your other monthly debt payments — car loans, credit cards, student loans, personal loans — should not exceed 43% of your gross income. This is called your debt-to-income ratio, or DTI.
If you earn $4,000 a month, 43% is $1,720. That $1,720 has to cover your housing payment plus every other debt you owe. If your housing payment is $1,120 (the 28% limit), you have only $600 left for car payments, credit card minimums, student loans, and anything else.
This is why paying down debt before you buy a house matters. Every car loan you pay off, every credit card you clear, every student loan you reduce lowers your DTI and frees up room for a larger housing payment. If you are carrying high debt, you may find that your housing payment limit is lower than the 28% rule alone would suggest.
What happens when the math works but your budget does not
A lender will approve you for a payment that fits the 28% and 43% rules. That does not mean you should take the full amount. The math is a floor, not a ceiling for your own comfort.
Consider what happens after you buy. You need to cover property taxes, which vary by location and can rise over time. You need homeowners insurance, which also rises. You need maintenance and repairs — a roof, a furnace, plumbing, paint. If you have little savings left after your down payment, an unexpected repair can force you to borrow or miss a payment.
If your income is irregular — you work commission, seasonal work, or are self-employed — a payment that works in a good month may not work in a slow month. If you are planning a job change, a career shift, or a period of reduced income, buy less house than the math allows.
A good rule of thumb: if the payment leaves you with less than $500 to $1,000 a month for everything else after housing and other debt, you are probably stretching too far. The math says you can afford it. Your life may say otherwise.
How to find your actual number: get pre-approved
The percentages give you a starting point, but your actual number comes from a lender. When you get pre-approved, a lender looks at your income, debts, credit history, and assets. They tell you the maximum loan amount they will lend you and at what interest rate.
Pre-approval is not a promise to lend — it is a conditional offer based on the information you provide. The lender will verify your income and debts before you actually close on a house. But it gives you a real number to work with when you start looking.
Getting pre-approved also shows sellers you are serious. In a competitive market, a pre-approval letter can make your offer stronger. It costs nothing to get pre-approved, and you can shop around — different lenders may offer different rates and terms.
The difference between pre-approval and pre-qualification
Pre-qualification is a quick estimate based on what you tell a lender. They ask your income, debts, and credit score, and they give you a rough number. It takes minutes and requires no documentation.
Pre-approval is deeper. The lender asks for pay stubs, tax returns, bank statements, and a credit report. They verify what you told them. Pre-approval takes a few days and carries more weight with sellers.
For figuring out what you can afford, pre-approval is the tool that matters. Pre-qualification is a starting point, but it is not reliable enough to base a house search on.
What to do if the number feels too low
If the lender's number is lower than you expected, the cause is usually one of three things: your income is lower than you thought, your debts are higher than you realized, or your credit score is affecting the interest rate you may have access to for.
If debt is the issue, paying down credit cards or loans before you explore can raise your approval amount. Even paying off a car loan a few months early can make a difference. If your credit score is low, working to raise it before you explore may lower your interest rate and increase what you can borrow.
If your income is the constraint, you have fewer options in the short term. But if you are expecting a raise, a bonus, or a second income to join the household, you can wait a few months and explore again. Just be aware that lenders typically average income over two years, so a recent raise may not count fully yet.
Frequently Asked Questions
Should I use the full 28% that lenders allow?
No. The 28% is the maximum lenders will accept, not a recommendation for how much you should spend. If it leaves you with little cushion for other expenses, maintenance, or income changes, buy less house. A payment that is comfortable for you matters more than a payment that is technically allowed.
Does my down payment affect how much house I can afford?
Yes, in two ways. A larger down payment means you borrow less, so your monthly payment is lower — which means you can afford a more expensive house on the same income. A down payment below 20% triggers mortgage insurance, which adds to your monthly cost and reduces what you can afford.
What if I have student loans or other debt?
Student loans, car payments, and credit card minimums all count toward your 43% debt-to-income limit. The higher your other debts, the lower your housing payment limit will be. Paying down debt before you buy can significantly increase your buying power.
Can I get approved for more than the 28% rule allows?
Some lenders will go above 28% if your other debts are very low and your credit is strong, but it is rare and usually comes with a higher interest rate. Even if a lender approves it, that does not mean it is a good idea for your budget.
What if my income changes after I buy?
Your lender does not care — your payment stays the same. That is why buying less than the maximum you are approved for matters. If you lose income or face a job change, a lower payment is easier to maintain than a payment that was already stretching your budget.